This fund invests in bank and insurance regulatory capital. Tier 1, Tier 2 and Additional Tier1. So, broadly Prefs, PIBS, Perpetuals, Subordinated debt and CCDS. All the stuff that’s getting harder and harder for us to by as retail investors as the minimum size on new issues is now usually 100k or 200k.
At the moment I like regulatory capital for two reasons.
Firstly when we had the meltdown in the financial markets the central banks stepped in to ensure an orderly market and to support the banking system. Although there might have been consequences for regulatory capital, actually the opposite happened as dividends were suspended, thus strengthening the banks balance sheets and making regulatory capital less risky. There is nothing to say the central banks may change their philosophy on this next time but I perceive these assets as less risky than I might otherwise have done.
Secondly most of the instruments have short maturities. 70% of the investments mature in the next 5 years so as interest rates rise, existing instruments will get replaced with new instruments at higher interest rates. I wouldn’t say it’s inflation protection, but it’s a good start.
I particularly like AXI because it’s a proper managed fund. If you read through the monthly factsheets you will see they are active in the market. Far more active than funds like NCYF or BIPS. The downside is the fee. 1% plus 15% performance for returns over 7%. Out of interest they recently bought PFG bonds on the fall to the low 90’s but have since sold them as Amigo lost their court case. I’m particularly pleased about this as the Provi outcome seems a bit risky to me.
Their factsheet can be found here https://axiom-ai.com/web/en/axiom-european-financial-debt-fund-limited-2/#
Edison have a research note which explains AXI far better than I ever could:https://www.edisongroup.com/wp-content/uploads/2021/04/Axiom-European-Financial-Debt-Fund-Capital-opportunities.pdf?utm_source=CEF+sending&utm_campaign=7252b902bc-EMAIL_CAMPAIGN_2018_04_12_COPY_01&utm_medium=email&utm_term=0_626bd5a771-7252b902bc-341014593?version=2021-7-5
Now, here’s the bit that I think is worthy of further consideration. It’s currently 92.6p to buy, with no stamp duty and has a NAV of 103.0p. That’s a 10.1% discount to NAV. Dividend is 6p giving a yield of 6.5% which puts it above the running yields on most of our popular Prefs and PIBS and subordinated bonds, mostly I suspect because retail investors are bidding up the prices of the few instruments left available to us, whereas AXI access the 100k and 200k instruments. For example,AXI’s third largest holding is the 9.75% IPF whereas we only have access to the 7.75%.
From my perspective holding an appropriate amount of regulatory capital in my portfolio is worthwhile and this is the only Investment Trust which is 100% regulatory capital. It’s getting harder and harder to buy direct at a decent yield and AXI provides me not only a better return but it seems I can buy it currently at a 10% discount and let someone else to do the work for the next 40 years, instead of scrabbling around desperately trying to find something with a decent yield.